Articles in Category: Best of MetalMiner

Over the holidays, we will be republishing our top posts of 2016 over the next few days. This was our single most-read post of 2016 from way back in January. Many of Soros’ predictions for the year we’re about to leave behind never came to fruition (a “hard landing” in China) while others were spot on (the Federal Reserve left interest rates, mostly, alone this year). Looking back on it now, much of what Soros spoke of has not changed. China is still exporting deflation even though metal prices recovered this year.

You would be a brave investor to bet against George Soros. The billionaire investor has shown a canny knack of making the right calls over the decades. As an article in Bloomberg says he rose to fame as the hedge fund manager who broke the Bank of England in 1992, netting $1 billion with a bet that the UK would be forced to devalue the pound.

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He also successfully bet that Germany’s deutsche mark would rise after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year. Between 1969 and 2011, Soros led his hedge fund to average annual gains of about 20% before returning money back to investors in 2011. Read more

Over the holidays, we are republishing and revisiting some of our most well-read posts of 2016. While this one technically doesn’t fall into the 2016 (it was initially published December 14, 2015) but we are still looking back at it anyway since it deals with predictions about metal prices for the year we’re about to leave behind. It also gathered the second-most traffic of any post we published in 2016 despite predating the year by a few weeks.

At the time, my colleague Raul de Frutos wrote “Currently, some key Chinese indicators we are tracking are giving us no reason to expect higher metal prices in 2016.”

Yet, we have seen higher metal prices in 2016 and we are now in a full metals bull market. The reason we are is because of everything Raul cited in his post. He was 100% right that “the longer it takes China to clean up its mess, the later metal prices will hit bottom.”

China cleaned up its mess, hit bottom early in 2016 and turned global commodities demand around remarkably fast, all things considered. This reminds us that markets can make a turn around quickly. The future is unpredictable and we need to take the market day by day. Just four months after this post, we went from bearish to completely bullish on industrial metals. Enjoy the second of our Best of MetalMiner in 2016 series. -Jeff Yoders

As you well know, the main cause of the commodities meltdown has been China’s slowdown. Since China makes up half of the world’s demand for commodities, the economic slowdown means lower demand which has led to a situation where a glut of materials can’t find a home.

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The role that China plays in commodity prices is so big that the future of metal prices is totally dependent on China. The longer it takes China to clean up its mess, the later metal prices will hit bottom. Currently, some key Chinese indicators we are tracking are giving us no reason to expect higher metal prices in 2016.

Trade Surplus

Imports to China dropped 8.7% to $143.14 billion in November from a year earlier, extending a slump in imports to a record 13 months, suggesting that government stimulus measures are failing to boost growth.

China Imports (millions $) Source: trading economics.com

China Imports (millions $) Source: TradingEconomics.com from Customs Administration Data.

Meanwhile, Chinese exports declined 6.8% to $197.24 billion in November from a year earlier, marking the fifth straight falling month. The fact that China is struggling to increase its exports demonstrates that global demand is weak and that China will have to find a more painful solution to balance its surplus. The trade surplus and the inability to find a home for the excess of materials flow will continue to keep a lid on China’s growth, depressing commodity prices.

China Exports (millions $). Source: tradingeconomics.com

China Exports (millions of dollars). Source: TradingEconomics.com

Yuan Falls To Four-Year Low Against The Dollar

Chinese authorities want to see a smooth depreciation of the yuan/renminbi as China faces external pressure not to devalue its currency too quickly. A sharp depreciation would probably hurt the country’s credibility at the same time China wants to attract more foreign capital. In addition, it would raise criticisms that China is keeping its currency artificially low to encourage more exports.

Yuan versus dollar. Source: yahoo finance

Yuan versus dollar. Source: Yahoo Finance.

Recently, China’s central bank cut its reference rate to the lowest level since 2011. The yuan fell against the dollar to the lowest level since 2011. Although China has said that it has not allowed the yuan to slide to boost the economy or increase exports, it seems that the market is taking these developments as desperate actions from China’s government to help the economy, raising concerns among investors that the country’s slowdown might worsen.

China’s Equity Markets’ Slump Continues

We believe that equity markets are the best benchmark for the performance of China’s economy, or at least investors’ sentiment about China. We’ve analyzed before the link between China’s stock market and commodity prices. Currently, this link is even more noticeable.

China FXI ishares

China FXI shares continue to fall. Source: @StockCharts.com.

After the huge slump this summer, equity prices mildly recovered, but since October we see that equities are heading south again. The poor performance of Chinese stocks demonstrates that investors are still worried about the future of the country and not lured by its government actions.

New! Free Download: The December MMI Report

Contrary to what others are saying, we suspect that the slump in China’s stock market could continue, resulting in more fears and more sell-offs in commodities/metals markets.

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Thank you for using our services to inform your metals purchases and trades. We take seriously the trust you place in our benchmarking, forecasting and metal price services.

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This Thanksgiving holiday we promise to continue to provide you with the best information to inform your purchases.

Happy Thanksgiving from MetalMiner!

Happy Thanksgiving from MetalMiner!

Have a happy Thanksgiving with your families and all those that you hold dear.

We are republishing our best-read posts of 2016 during the holidays as we look forward to 2016. This is the most-recent of our Best-of-MetalMiner posts, having only been published a few weeks ago on November 15. It continues the trend of highlighting the predictions of our lead forecasting analyst, Raul de Frutos. — Jeff Yoders, editor

Since their peak in the summer, domestic prices of flat steel products have fallen in the range of 20-30%. However, we have some reasons to believe U.S. steel prices are set to rebound:

Trump Wins: Investors Bet On Steel Companies

What changes in the steel industry Donald Trump will make are still unknown. What’s clear is that the new president-elect made trade, manufacturing and the steel industry a cornerstone of his agenda.

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Stocks of American steel companies soared last week as investors hope that a Trump-led government will boost domestic infrastructure, which could be a boom for steel demand. In addition he has stated he would institute more measures to protect domestic steel producers.

Dow Jones US Steel Index hits a 2-year high. Source:MetalMiner analysis of stockcharts.com data

Dow Jones U.S. Steel Index hits a two-year high. Source:MetalMiner analysis of @stockcharts.com data.

A good benchmark for steel prices is the Dow Jones US Steel Index, which tracks major steel producers around the globe. Following the election, the index rose sharply to the highest levels in two years. The stocks of US steel companies are linked to domestic steel prices. This powerful price increase hints to a rebound in steel prices.

Rising Chinese Steel Prices

HRC and CRC prices in China continue to rise. Source: MetalMinerIndex

HRC and CRC prices in China continue to rise. Source: MetalMinerIndex.

Chinese demand from infrastructure and construction has been robust this year. So has its auto sector, a key industry for steel demand. The Caixin manufacturing PMI for October rose to 51.2, the highest reading since July 2014 and betting market expectations. Vehicle sales in China increased 27% year on year in September, reaching the highest figure so far this year.

HRC US versus HRC China. Source:MetalMinerIndex

U.S. HRC versus Chinese HRC. Source:MetalMinerIndex.

Prices in China are at the highest levels in two years while U.S. prices have fallen. As a result the international price arbitrage has come down to normal levels.

Free Download: The November 2016 MMI Report

Cold-rolled coil is still $162 more expensive in the U.S. than in China, but domestic prices for hot-rolled coil are just $43 higher than in China. To conclude, higher prices internationally will make it a lot easier for U.S. mills to justify a price hike.

Industrial Metals Booming

Base metals ETF skyrockets. Source:MetalMIner analysis of stockcharts.com data

Base metals ETF skyrockets. Source:MetalMIner analysis of stockcharts.com data

Another reason to expect a rebound in steel prices is the ongoing price strength across the metal complex. We are witnessing powerful moves across the board. Even copper, a metal whose fundamentals didn’t look appealing, recently rose near 20% in a matter of days. The bullish sentiment across base metals is another reason the expect a rebound in steel prices.

When To Buy Steel?

Earlier this year, steel buyers had a good opportunity to lock in purchases at low prices. We expect to see another good opportunity to buy steel soon. Steel buyers need to closely monitor domestic prices, to understand the right time to hedge/buy forward.

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cubs win chicago tribune home page

I had to go through the contemporary equivalent of ritually collecting newspapers’ front pages, and here’s the local’s effort (all the more fitting due to their parent company’s past ownership of the Cubs). Note the time – 1:28 a.m. ET. A long, yet exhilarating, night. Go Cubs Go!

The entire city of Chicago, our company headquarters included, is still in shock.

The lovable, perennially losing NorthSiders overcame the Curse of the Goat and so many other obstacles to take it all: The Chicago Cubs are, at last, World Series champions after 108 years.

Jayson Stark of ESPN put it best when he quipped, “It was suddenly possible to type a sentence that no living human has ever typed: The Chicago Cubs are the champions of baseball.”

I’m still coming out of a wonderful coma-like aftermath of emotions, having watched every pitch and vacillating between several elements of superstition (standing near the TV for top halves of innings, sitting in armchair for bottom halves since Game 5, among several others…don’t ask) as the Cubs and Indians’ seesaw battle jacked my heart rate up and knotted my neck-and-shoulder muscles in the early morning hours.

The fearless leader of our sister site Spend Matters, Jason Busch, wrote this excellent post-mortem earlier today, so head over there to read a great personal story of the Cubs’ triumph.

But first, share in this #TBT to when my colleague, MetalMiner Editor Jeff Yoders, and I did our parts last season in helping lay the literal groundwork for this 2016 victory:

Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)

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Kevin_Dempsey_144_102016

Kevin Dempsey

MetalMiner Managing Editor Taras Berezowsky recently sat down with Kevin Dempsey, Senior VP for public policy at the American Iron & Steel Institute. Dempsey leads the AISI public policy team representing the interests of North American steel producers and also serves as General Counsel to the Institute. Before that he was a practicing attorney who specialized in trade matters.

During his years on Capitol Hill and in the private sector, Dempsey has worked extensively on international trade negotiations, including the Doha Development Agenda and the original negotiations on the accession of China to the World Trade Organization. He also has considerable experience with U.S. and international law related to subsidies, trade remedies, market access, intellectual property rights, and product standards, as well as U.S. legislative procedures for authorizing and implementing trade agreements.

As such, he possesses a veritable wealth of knowledge about the issue of market economy status for China and how that would impact the U.S. steel industry.

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Taras Berezowsky: Just initially, I saw in your bio that you had worked on China’s original agreement of accession to the WTO. In what capacity did you work with them?

Kevin Dempsey: I was a lawyer, a trade lawyer, in private practice representing a number of U.S. industries that were interested in the question of China’s role in the WTO and making sure that the rules going forward were going to be fair ones that ensure fair competition with China.

A big issue at the time was the extensive state involvement in the Chinese economy and the need to make sure that we had effective laws, including the ability to continue to treat China as a non-market economy under the anti-dumping law.

Read more

It was on one of those weeks when a non-metal commodity dominated metals coverage. We mean the one that factors into just about every metal price through either production or transportation costs. The black gold that sluices across prairie and canyon in tanker cars, pipelines and trucks. The input whose value and production fluctuates at the whim of both Sheikh and wildcatter.

So, honey, then, right?

Saudi Arabia and Russia promised to work together on a “task force” to try to right-size the oil overproduction we’ve become accustomed to over the past two years. MetalMiner Co-Founder Stuart Burns warns that the days of $100 per barrel are, indeed, long gone but something could still come of this latest effort to rein in production. Naturally, the markets ebbed and flowed on speculation of what, exactly, that might be like a small ocean of the stuff filling to the brim a tanker bound for China.

Negative on that Manufacturing Growth

The Institute of Supply Management‘s manufacturing index turned negative in July for the first time since February. And the services gauge fell last month to the lowest level since early 2010. Perhaps the economy’s not doing as great as we thought it was?

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The manufacturing index dropped to 49.4% from 52.6% in August and the ISM services gauge retreated to 51.4% from 55.5%. The combined reading of two indexes was also the weakest in six years.

Transshipment Trouble

Last week, we wrote about China Zhongwang and its billionaire owner, Chinese Communist Party member Liu Zhongtian, buying U.S-based extruder Aleris. Well, more trouble this week for Zhongwang as the Commerce Department launched a new investigation into transshipments related to nearly 1 million metric tons of aluminum stored in rural Mexico.

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Zhongtian says he and his company have nothing to do with it. The Wall Street Journal? Well, it says shipping documents and sales receipts related to the massive stockpile all lead back to Zhongwang.

Less Titanium Production in Utah

Instead of forming titanium sponge by passing titanium tetrachloride in a gaseous phase over molten magnesium or sodium at its Rowley, Utah, facility, Allegheny Technologies, Inc., is cutting out the middle man. The specialty metals producer will now buy its titanium sponge on the open market. By idling the Rowley titanium facility indefinitely, ATI is also cutting 140 jobs. Read more

This week, the Car Wars got hot again as General Motors, on behalf of its Chevy Silverado truck line, started running ads about how weak the rival Ford F-150’s aluminum bed really is.

Free Download: The May 2016 MMI Report

GM literally poked holes into the idea that aluminum could be a strong as steel.  They even had Howie Long rub it in.

GM-youtube_Ford_F150_550_060716

The advantage Ford holds, and the reason the automaker pursued aluminum for truck beds in the first place, is that their F-150 is still much lighter and conforms more easily to federal corporate average fuel economy (CAFE) standards. Perhaps Ford should break out the scales and do a fuel economy comparison to strike back at GM? Or should it just keep repeating “military grade aluminum?”

While the automakers were duking it out about who’s truck is tougher, actual steelmakers turned their attention to Beijing where the U.S.-China Strategic and Economic Dialogue took place. U.S. Treasury Secretary Jack Lew called on China to, again, cut excess steel production capacity. China said they would. Again.

The steelmakers gave that a hearty “put or show up.” Well, the American Iron and Steel Institute used more words but that was, essentially, the gist. Our own Stuart Burns also noted that steel is just one of many things that China overproduces and there really might not be much that Beijing can actually do to rein in the wealth of tiny producers of steel and refiners of diesel fuel in its far-flung provinces.

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So, trade wars, car wars and tariffs. Just another week in steel.

MonthlyMetalBuyingOutlook_March2016_210Our Metal Price Outlook for the month of March is now available to subscribers.

The MPO offers medium- and short-term trend analysis covering: aluminum, copper, nickel, lead, zinc, tin, and several steel forms – HRC, CRC, HDG, and plate.

It also features commentary and graphs identifying all the technical and fundamental factors driving price movements and includes monthly industrial buying strategies tailored for the US manufacturer.

Visit MetalMiner Forecasting to learn how to subscribe or for more information.

Spot iron ore prices hit a fresh 10-year low after falling below $40 per metric last week.

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Weakening steel demand is causing a slump in finished products and raw materials prices. Our Raw Steel MMI didn’t take a break in December, falling 4.2% to 46 points, yet another all-time low.

Raw-Steels_Chart_December-2015_FNL

Early this year, many believed that the steel industry would recover during the second half of the year, even steel companies’ 2Q15 better-than-expected-earnings results raised optimism of a possible recovery. We didn’t subscribe to this view. The slump in steel prices continues and the fiscal 3Q15 financial results of most steel companies failed to cheer up investors.

The market has seriously underestimated the demand erosion that the economic rebalancing in China has created.

Overcapacity Still an Issue

Steel producers are still waiting for demand to meet the overcapacity built over the past few years. In addition, almost a decade with borrowing costs near zero has lead to a situation where there is still new capacity yet to be built and also existing capacity that doesn’t close. Low-cost credit has permitted even unprofitable production to be maintained, and while production levels are well off their peaks, there have been few permanent capacity closures.

Chinese Producers

The excess of production is still a concern in China, given the high levels of debt that producers there are dealing with. While many steel companies are able to cover debt costs out of operating profits, other companies are still borrowing from one bank to pay the older debt to another.

In November, Chinese steelmaker Tangshan Songting Iron and Steel, with an annual capacity of 5 million metric tons, said it would cut output due to debt pressures. Despite China cutting interest rates, as demand and prices collapse, banks are starting to tighten lending to the steel sector and losses are stacking up. Many mills are having a hard time extending their loans while they lower steel prices in competition to get contracts. The plunge in Chinese steel profits and and prolonged worries over weak demand might force more and more Chinese producers to close, removing exports from the global market before we see a recovery in prices.

Free Download: The November MMI Report

Steel prices, like the rest of base metals, were impacted in November by a strong dollar and the bearish sentiment that this adds to commodity markets. There are few to no indicators pointing to a recovery in steel prices anytime soon.

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